The Parliamentary Budget Officer released a troubling report earlier this month that shows that, when Ontario’s provincial and municipal finances are looked at together, Ontario will be running deficits indefinitely, until at least the year 2095.
Typically, when analysts look at the state of government finances in Ontario, they look at provincial forecasts or municipal forecasts.
But the PBO chose to look at the fiscal trajectory of the entire province, municipalities included.
Why would the Parliamentary Budget Officer factor in finances at the municipal level?
The Canadian constitution gives the provinces sole authority over municipalities. Unlike the federal or provincial governments, municipal governments have no constitutional status.
They are created by provincial governments and can be disbanded by provincial governments.
Look no further than the amalgamation of Toronto or Premier Doug Ford’s decision to cut the size of Toronto city council in half.
The fact that provincial governments have authority over municipalities also means that they are responsible for them. Any debts taken on by Canadian cities and towns become the provincial government’s responsibility should a municipality, for whatever reason, be unable to pay them.
Therefore, it makes perfect sense for the PBO to look at the debt of Ontario governments collectively.
It also means that all of these debt bills – municipal, provincial, and even federal – all fall onto the same taxpayer.
In the Ford government’s 2021 budget, Finance Minister Peter Bethlenfalvy predicted that the province would be able to balance its budget by the end of the decade.
While the Ford government should work to balance its budget much sooner, the good news is that the province’s numbers do show a trajectory toward a balanced budget.
But when the finances of Ontario’s municipalities are included in the equation, Ontario collectively is not projected to balance its books at any point between now and the year 2095, the end of the Parliamentary Budget Officer’s forecast.
Some may wonder how the spending at city halls could throw the budget numbers off, given that Canadian cities and towns are not allowed to run operational deficits.
Operational is the keyword: municipalities must balance their budgets that deal with day-to-day expenses, but they have a separate capital budget that accounts for major infrastructure spending. Capital budgets are allowed to be in deficit.
Consider the 2021 budget approved by Toronto city council. While the operational budget is balanced, the city plans to borrow $1 billion to pay for capital projects this year. The plan also includes another $1.4 billion of capital spending debt, to be taken on over the next two years.
Toronto’s latest data also shows that the city’s debt stood at over $7 billion in 2019, having increased by over $2 billion over a three-year period.
Toronto is just the tip of the iceberg. All of Ontario’s 444 municipalities also take on debt to pay for capital projects such as transit tunnels, bike lanes, and garbage collection centres.
That goes a long way to explain why even if Queen’s Park balances its budget by the end of the decade, Ontario overall will continue to accumulate debt.
The fact that Ontario’s governments are set to collectively spend more than they take in every year for the next seven decades should alarm every taxpayer. Annual payments on debt interest alone are projected to exceed $180 billion by the year 2095.
Ontario taxpayers deserve better. It is high time that we begin to consider the risks associated with allowing municipal governments to run deficits to finance capital spending. Ontario taxpayers will be on the hook should any of Ontario’s 444 municipalities be unable to pay its bills.
For the sake of the next generation, Ontario governments need to get their financial houses in order and find a way to escape a decades-long debt spiral.
Jay Goldberg is the Interim Ontario Director for the Canadian Taxpayers Federation.
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